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FX Technical Outlook: Yen and Dollar Weakness Set to Continue

SATURDAY, NOVEMBER 24, 2012
Marc Chandler

http://1.bp.blogspot.com/-w4aEjgjfKS.../blackjack.jpg

Due to the Thanksgiving holiday in the US, the Commitment of Traders report of positioning in the currency futures market has been delayed.
We will review that separately when the data is available next week. Here we present an overview of our near-term technical outlook.

Last week, we recognized that the US dollar was overstretched and anticipated some consolidation/correction. Yet the pace and magnitude of the move was surprising, especially in light of the series of disappointing developments in Europe, which include the initial failure to resolve Greece's funding problems and the EU's next 7-year budget. Nor was the economic data inspiring, as the main report of the week, the Nov flash PMI reading, suggests the euro area economy continues to contract here in Q4.

In contrast, the US reported stronger than expect existing home sales and housing starts, as the painfully slow recovery in the housing market continues. Weekly initial jobless claims slipped back as the impact of the east coast storm fades. The newly introduced Markit PMI reading was above consensus forecasts. The University of Michigan's final consumer confidence measure for November was a bit softer than the preliminary report, but still is at 4 1/2 year highs.

Admittedly, the key issue in the US is not how the economy is performing now, but the looming fiscal cliff. The noises and signals emerging from Washington seemed to be a source of some confidence that the worst of it will be averted, though we continue to suspect that brinkmanship tactics will make for only a last minute deal (if not a slightly later one) Yet the optimism was frequently cited for the S&P gains last week.

Recall that the S&P 500 rallied about 16.5% from early June through mid-September. We turned cautious here (Sept 22), anticipating a decline to at least 1400. The S&P overshot this, but staged a reversal on Nov 16 and saw impressive follow through last week. In fact, the S&P's 4.1% advance last week, was the best since June and all the main industry groups, save utilities, participated.

With the pre-weekend advance, the S&P 500 has retraced 50% of its two month slide. The next retracement level is near 1424 and the month's high comes in near 1434. These are the main two technical barriers ahead of a return to the year's high near 1475. We note that the 5-day moving average of the S&P 500 is poised to cross above the 20-day average early next week. In addition, what could be a head and shoulders bottom projects toward 1435. The correlations between the foreign currencies and the S&P 500 has declined over the past few months, but has begun to increase again recently.

Some observers emphasized that even though the European finance ministers initially failed to reach an agreement on Greek funding, a resolution remains imminent and that this lifted the euro. Since the market did not punish the euro on disappointment, we suspect it is not really rewarding the euro because of a soon-to-be-announced agreement. Moreover, baring a dramatic reduction in Greece's debt, which given the ownership structure, will require at some point at least partial forgiveness by officials, the Greek situation will have to be revisited.

We do not see the price action in the foreign exchange market as being fundamentally driven, though post hoc narratives can always be written. Instead, we suggest that the dramatic sell-off in the yen, spurred by anticipation that the next Japanese government will take aggressive measures that will debase the currency. The yen's move forced cross rate adjustments and this took on a life of its own.

Many short-term market participants had been leaning in the wrong direction. The market had been technically poised to set the dollar back, as we suggested last week the dollar bulls had over-reached, as speculators in the futures market (a proxy, we think, for trend followers and momentum traders) were adding on to short foreign currency positions or cutting longs.

If this is correct, the performance of the yen may hold the key to the general dollar performance in the days ahead. As we note below, we see no technical sign that the yen has bottomed and this implies additional near-term dollar weakness is likely. Good selling of the yen, against the dollar and crosses, is still seen on the modest upticks. The weak yen theme may also renew interest in using the yen as a funding currency, ironically shortly after some observers sounded the death knell of the carry trade.

Euro: After spending most of the month below the technically important $1.28 area, the euro jumped back above last week. A rounded bottom has been carved out and the $1.2840 area should now offer support. On the upside, the next test of the bulls' resolve will be in the $1.3000-30 area. The potential downtrend drawn off the mid-Sept and mid-Oct highs comes in near $1.31 by the end of the month. Technical indicators, like RSI and MACDs, are constructive and the 5-day moving average crossed above the 20-day average at the end of last week, suggesting short-term models and momentum traders are getting positive signals. Constructive technical outlook.

Yen: Japan's macro-economic conditions, like the contracting economy, large, even if not heavy, debt burden, and deteriorating external accounts, offer textbook fundamental reasons not to like the yen. However, it took the threat of significant currency debasement by the man expected to become the next prime minister to spur the yen's slide. The adjustment does not appear over, even if the recent pace, a 3.6% slide since November 13 is not sustained. Dollar support is seen near JPY81.60-80. On the upside, there has been reports of good demand for JPY83 and JPY84 strikes. This year's high, thus far, was set in March near JPY84.18. Last year's high was recorded in April near JPY85.50. Demand for euros against the yen may have helped begun the euro rally. The euro is poised to move toward the JPY111 area. Negative technical outlook for the yen.

Sterling: While it has lagged behind the euro, sterling has also gained against the greenback. However, unlike the euro, sterling closed only once below the 200-day moving average, where the euro spent most of the month below it. Sterling's 5-day moving average has not crossed above the 20-day average, it likely will in the week ahead. Momentum and MACD indicators are constructive. The next technical hurdle is seen near $1.6050 and when it is overcome, it could spur another cent or so advance. Initial support is seen near $1.5960 and then $1.5920. Constructive technical outlook for sterling.

Swiss franc: Dragged higher by the euro, the franc is poised to appreciate further against the dollar in the period ahead. The dollar has carved out a round top, confirmed by the push through CHF0.9400. It is testing the CHF0.9280 area now on its way to CHF0.9200. However, significant support for the dollar is not seen until closer to CHF0.9200. The dollar's 5-day moving average crossed below the 20-day on Thursday last week, a day before the euro's averages crossed. Technical indicators suggest plenty of scope for additional near-term dollar losses. Constructive technical outlook for the franc.

Canadian dollar: The Canadian dollar was the second worst performer against the dollar over the past week, next to the yen. It gained almost 1% against the greenback, but it is poised to extend those gains next week. Trend line support drawn off the Sept 14 low (~CAD0.9635) and the Oct 18 low (~CAD0.9765) comes in just above CAD0.9900 at the start of the new week. A band of support extends to CAD0.9875. There is potential toward CAD0.9800. Note, however, that typically when the US dollar is offered, the Canadian dollar lags on the crosses (except against the yen). Corrective bounces in the US dollar may be capped by resistance in front of CAD1.0000. Constructive technical outlook for the Canadian dollar, but may continue to lag behind the European currencies.

Australian dollar: With news that the Chinese economy showing signs of bottoming and many investors looking past the likely early December RBA rat cut, that the Australian dollar advance is not surprising. What is surprising is that it was among the weaker performers. Technical tools are neutral to positive. The next are of resistance is seen in the $1.0480-$1.0500 band. However, the critical cap is not seen until closer to $1.0600-$1.0625, the highs from August and September. Support is seen near $1.0380-$1.0400. Constructive technical outlook for the Australian dollar, but look for it to continue to lag.

Mexican peso: The dollar's recovery against the peso since early October is over, with a convincing violation of the uptrend line. New offers are likely to help cap dollar bounces in MXN13.05-08 area. On the downside the immediate target is MXN12.90 and then MXN12.77-MXN12.80. Long peso, short yen positions posses both carry and momentum features. Constructive technical outlook for the peso and an attractive yield pick-up.

HIGHLIGHTS-Leaders' comments ahead of EU budget negotiations

Thu Nov 22, 2012 12:43pm EST

Nov 22 (Reuters) - European Union leaders face a long and bitter tussle to agree future spending plans worth 1 trillion euros ($1.28 trillion) at a summit starting on Thursday.
Negotiations are scheduled for Thursday and Friday but could run into the weekend.
Following are comments by EU leaders and officials ahead of the talks.

Source : Reuters



Battle lines sharpen in fight over seven-year EU budget

By Jan Strupczewski and Peter Griffiths
BRUSSELS | Thu Nov 22, 2012 3:20pm EST

(Reuters) - European Union negotiators are close to securing British and German backing for a deal on nearly a trillion euros of spending over the next seven years, but concessions will be needed to win support from France, Poland and some southern European states.

Source : Reuters



EU budget talks dim after gesture to French, Poles

By Andreas Rinke and Luke Baker
BRUSSELS | Thu Nov 22, 2012 7:28pm EST

(Reuters) - Prospects of a deal on the European Union's long-term budget dimmed on Friday after a fresh compromise proposal offered concessions to France and Poland but ignored British and German demands for deeper overall spending cuts.

Source : Reuters

Fed balance sheet contracts in latest week

NEW YORK | Fri Nov 23, 2012 6:49pm EST


(Reuters) - The Federal Reserve's balance sheet shrank in the latest week with a lower holdings of federal government and agency securities, Fed data released on Friday showed.

The Fed's balance sheet - a broad gauge of its lending to the financial system - stood at $2.853 trillion on November 21, down from $2.859 trillion on November 14.

The Fed's holdings of Treasuries totaled $1.650 trillion as of Wednesday from $1.657 trillion the previous week after it sold more debt than it purchased for its Operation Twist this week.

Operation Twist involved the Fed selling its short-dated Treasuries holdings and buying longer-dated ones on the open market in an effort to lower long-term borrowing costs. This program was expected to expire at the end of the year.

The Fed's holdings of debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Bank system slipped to $79.28 billion from $81.90 billion a week earlier.

The Fed's ownership of mortgage bonds guaranteed by Fannie Mae (FNMA.OB), Freddie Mac (FMCC.OB) and the Government National Mortgage Association (Ginnie Mae) totaled $900.58 billion compared with $889.02 billion the previous week.

The rise in agency MBS stemmed from the Fed's third round of quantitative easing, known as QE3. Its open-ended purchases of MBS are intended to help housing market with the goal to foster U.S. economic growth.

The Fed's overnight direct loans to credit-worthy banks via its discount window averaged $5 million a day during the week from a $13 million a day average rate the prior week.

(Reporting by Richard Leong)


Source : Reuters

A 'Fiscal Cliff' Deal: How to Know if It's Real Thing—or Not

Published: Saturday, 24 Nov 2012 | 7:43 PM ET
By: AP


President Barack Obama and leaders of the lame-duck Congress may be just weeks away from shaking hands on a deal to avert the dreaded "fiscal cliff." So it's natural to wonder: If they announce a bipartisan package promising to curb mushrooming federal deficits, will it be real?

Both sides have struck cooperative tones since Obama's re-election. Even so, he and House Speaker John Boehner, R-Ohio, the GOP's pivotal bargainer, have spent most of the past two years in an acrid political climate in which both sides have fought stubbornly to protect their constituencies.

Source : CNBC



European Banks Want One Year Delay on Capital Rules

Published: Saturday, 24 Nov 2012 | 10:14 AM ET
By: Reuters


European banks have asked the European Commission to postpone the introduction of tougher global bank capital rules by a year to 2014 after U.S. regulators delayed application of the new requirements.

The new rules, known as Basel III, are the world's regulatory response to the 2007-09 financial crisis and would force banks to triple the amount of basic capital they hold in a bid to avoid future taxpayer bailouts.

Source : CNBC

thanks for your guidance and reference ...
learning time now
trying to catch as much as i can

always green pips for you

Your Welcome...

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Britain Finds Budget Buddies

November 23, 2012, 2:35 PM
By Vanessa Mock and Nicholas Winning


At a time when the U.K.’s membership of the European Union is in greater doubt than ever, a small group of allies have rallied to its side, lessening the chances of Britain’s splendid isolation from the rest of the continent.

The EU summit on the explosive issue of the bloc’s budget had threatened to further widen the gulf between the U.K. and the other 26 nations in the EU, amid fears that British Prime Minister David Cameron would make good on his threats to veto the talks.


Source : blogs.wsj



Britain Targets Commission

November 22, 2012, 3:29 PM
By Nicholas Winning


Prime Minister David Cameron has suggested cutting “tens of billions” of euros of spending championed by European Commission President José Manuel Barroso as part of his drive to ensure the European Union’s next multi-year budget does not rise more than inflation, his aides say.

The suggested savings may represent a drop in the ocean in relation to the total EU multi-year budget likely to total almost €1 trillion. But they may have the added benefit for Mr. Cameron of pleasing Euro-skeptics back home that love to criticize what they perceive as the Brussels gravy train of well-paid EU officials.


Source : blogs.wsj

European Union Confronts the Risk of a 'Brixit'

Published: Saturday, 24 Nov 2012 | 3:32 AM ET
By: Paul Ames


http://media.cnbc.com/i/CNBC/Section...summit_200.jpg

BRUSSELS, Belgium — Crucial talks on the future of the European Union ended in stalemate Friday prolonging a dispute over a $1.25 trillion spending plan that's poisoning Britain's relations with its continental neighbors.

However Europe's leaders eventually resolve the deadlock, the dispute over the EU's long-term budget risks pushing Britain further toward an exit from the union it joined 39 years ago, further weakening the bloc as it struggles with economic recession and the euro zone debt crisis.

However Europe's leaders eventually resolve the deadlock, the dispute over the EU's long-term budget risks pushing Britain further toward an exit from the union it joined 39 years ago, further weakening the bloc as it struggles with economic recession and the euro zone debt crisis.

If Prime Minister David Cameron loses his battle to impose an austerity freeze on the EU budget when the talks resume in the new year, he can expect a barrage of criticism back home from euro-skeptics already clamoring for Britain to walk out of the EU.
"The Brits do not want to pay any EU membership fee," said Nigel Farage head of United Kingdom Independence Party, which campaigns for Britain to quit the EU. "By a large majority, the British people want to leave this union and not pay you a penny," Farage told the European Parliament this week.

If Cameron succeeds in forcing through radical cuts in EU spending, he'll alienate many on the continent, including traditional British allies like Poland and the Baltic states who are relying on help from Brussels to modernize their post-Communist economies.
"Please don’t expect us to help you wreck or paralyze the EU," Poland's Oxford-educated Foreign Minister Radek Sikorski told a British audience in a recent speech. "Poland wants to be with Germany and France as partners, leading a strong, democratic European political-economic space."

The EU's presidents and prime ministers failed Friday to reach an agreement on the budget after two days of wrangling.
They will try to break the deadlock with another summit in 2013.



Source : CNBC

Thanks a lot

Hello Tsar, I hope you had a great weekend

This came into mind

Thank's, Mate...
I still given Info in the Room, but I've got some Rest and enjoy the Weekend with my Family

About CABLE... Agreed with you.
BULLISH Trend still Played in Daily. Btw got BEARISH Trend in Weekly.
And in H4 tf, have SIDEWAYS Now... Price 1.6050 as Critical Point

Great Graphic: Preliminary Election Result in Catalonia

SUNDAY, NOVEMBER 25, 2012
Marc Chandler



http://4.bp.blogspot.com/-gGsfTiO7kl.../catalonia.jpg


This Great Graphic was posted just now on Presseurop, which it took from a local television report.
It gives a quick and preliminary look at the election results in Catalonia. Mas' CIU party appears to have lost a few seats, but the left nationalist party ETC picked them up and more.

Recall that until September Mas was not a secessionist. Mas sought the same deal Basque Country receives. However, Prime Minister Rajoy refused to renegotiate the fiscal transfer program that is a source of the region's 42 bln euro debt.

Assuming the most optimistic results of this preliminary estimate, the center-right and center-left nationalist parties would have about 59% of the members in the 135 seat chamber. This would be a little more than it has now. However, for those seeking to turn the snap election into a referendum on independence, the results are not compelling. Surely such an important, even unprecedented decision of secession requires more than such a slim parliamentary majority.

Nevertheless, Mas may have succeeded in getting Rajoy's attention. It does not mean Rajoy will cave-in, but negotiations can resume.

Asian shares edge higher on hopes for Greek deal

By Chikako Mogi
TOKYO | Sun Nov 25, 2012 10:18pm EST

(Reuters) - Asian shares inched up on Monday on hopes that Greece can avoid a near-term bankruptcy, with the market focusing on a euro zone finance ministers meeting later in the day, but a regional Spanish vote favoring separatist parties capped gains.

It was the sixth day in a row of advances for MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS and comes after the euro and global shares climbed on Friday on expectations that an agreement will be reached soon to disburse aid for Greece, and on a rise in Germany's Ifo business climate index.


Source : Reuters



Global shares, euro rise on Greek hopes, German data

By Angela Moon
NEW YORK | Fri Nov 23, 2012 6:28pm EST

(Reuters) - Global stocks and the euro gained on Friday on signs of progress in talks on releasing aid to Greece and after an influential German survey found business sentiment had improved in Europe's largest economy.

U.S. stocks rose for a fifth day, getting a lift from bellwether technology shares such as Intel (INTC.O) and Microsoft (MSFT.O), both up about 2 percent. An index of semiconductor stocks .SOX gained 1.8 percent, while the S&P information technology sector index .GSPT rose 1.6 percent.

Trading on Wall Street ended early after markets were closed Thursday for the Thanksgiving holiday. With many investors still on holiday on Friday, volume was low. About 2.8 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, compared with the daily average for the year to date of 6.5 billion.


Source : Reuters

Morgan Stanley’s Doom Scenario: Major Recession in 2013

Published: Tuesday, 20 Nov 2012 | 6:46 AM ET
By: Deepanshu Bagchee - Managing Digital Editor, CNBC International



http://media.cnbc.com/i/CNBC/Section..._light_200.jpg


The global economy is likely to be stuck in the “twilight zone” of sluggish growth in 2013, Morgan Stanley has warned, but if policymakers fail to act, it could get a lot worse.

The bank’s economics team forecasts a full-blown recession next year, under a pessimistic scenario, with global gross domestic product (GDP) likely to plunge 2 percent.

“More than ever, the economic outlook hinges upon the actions taken or not taken by governments and central banks,” Morgan Stanley said in a report.




Source : CNBC

Does anyone see this crystal clear double top on the weekly charts for GBP/USD? I am short GBP from last week because it was overextended on the daily. Does anyone have a reason for this to retest 1.63 ish area and make a triple top? I hope not. Im doing this for real money, as a real job. I dont want to see GBP back at 1.63 for a year.

Also where did that Morgan Stanley Gloom and Doom thing come from. I hope it was made up. Too many reports like this can send the whole economy into a spiral just on panic, no fundamentals. I believe if on black friday in oct. 1929 politicians said that the stock market has nothing to do with our "Robust economy" we might have averted a depression. How do you have a stock mkt crash and then a depression. No one knew it was coming. Its old news now that Joe Kennedy and his cronies precipitated it. Destroyed the whole country and never did a day in jail. Is this a repeat of old joe again?

Euro zone, IMF to seek Greece deal, debt write-off main problem

By Jan Strupczewski
BRUSSELS | Mon Nov 26, 2012 5:14am EST

http://s1.reutersmedia.net/resources...=CBRE8AP0GN100

(Reuters) - Euro zone finance ministers and the International Monetary Fund will seek to unfreeze the second bailout package for Greece on Monday, but they first need to agree if some of the official loans to Athens might eventually be forgiven to cut Greek debt.

Euro zone ministers and their deputies have held numerous meetings and conference calls over the last two weeks to decide how Greek debt, seen at almost 190 percent of GDP next year, could be cut to a more sustainable 120 percent in 8-10 years.

Without agreement on how to reduce the debt, euro zone ministers and the IMF do not want to resume payments of loan tranches to Athens -- even though Greece has met all the conditions -- because they have no guarantee on whether the need for emergency financing will ever end.

The key question is: Can Greek debt become sustainable without the euro zone writing off some of the loans to Athens?



Source : Reuters

FX Drivers in the Week Ahead

MONDAY, NOVEMBER 26, 2012
Marc Chandler

http://4.bp.blogspot.com/-WOdFsQMHks...320/weekly.jpg


The last week of November has begun with a mildly consolidative tone in the foreign exchange market.
The US dollar is trading in relatively narrow ranges around its pre-weekend lows. Its performance against the yen is the exception. It has traded on both sides of last Friday's range. A close below Friday's low just above JPY82.00 would increase the risks of a deeper correction after the 4.6% advance in the past week and a half.

Consolidation is also the flavor of the day in the other capital markets.
MSCI's Asian-Pacific Index closed fractionally higher and most European bourses are paring last week's gains. In in the debt market core bond yields are mostly softer, while Spain and Italian benchmark yields are 3-7 bp higher.

The Eurogroup of euro area finance ministers are meeting today for the third time to figure out a way that Greece can be given funds so that it can pay its mostly official creditors in the coming years.

They are scrambling for an alternative to the haircut of the official sector the IMF was pushing for, though it insisted that it had to be kept whole. It looks likely a combination of debt buy backs reduction in rates and a recycling of the profits earned by the Eurosystem of central banks from the ECB previous bond buying program (SMP).

There are no assurances that today's meeting will succeed where the previous two have failed.
If no final agreement is struck today, upon which a few parliaments, including the Bundestag, have to approve, attention will turn to the next regular Eurogroup meeting scheduled for Dec 3. We are not convinced that euro's advance last week was really spurred by optimism over a Greek deal. What we found most striking was the euro's advance despite a series of disappointing developments and the flash PMI which warn that the area's two biggest economies are likely contracting.

Although the deal on Greece proved elusive, as did the next EU 7-year budget, and the Bundesrat, rejected a landmark tax deal with Switzerland and would have protected the anonymity of tax evaders, there was one modest success. It appears the general framework under which Cyrpus will become the fourth euro zone country to get a broad aid package was agreed upon. The package will reportedly be between 14-17.5 bln euros. Roughly half will go to bank recapitalization and half to finance the government for four years. The precise details will be worked out in early December.

Catalonia's regional election resulted in a somewhat larger majority for the center-right and center-left nationalist parties, though Catalonian leader Mas' party did significant worse than expected, losing about 20% of its seats. Roughly 2/3 of the 2/3 of the people that voted, cast their lot with the nationalist parties and all those votes cannot be rightly regarded as supporters of secession. It may force Rajoy (and Mas) back to the negotiating table.

Meanwhile, Spain's bank rescue fund will reportedly receive 35 bln euro in funds from Europe. The conditions will include dramatic cuts in head count at the nationalized banks. Up until now, layoffs at Spanish banks have been minimal, but in order to receive aid, the nationalized banks, including Bankia, may have to cut their work forces by nearly a third. More than a thousand branches may have to be closed.

We have argued that the aggressive stance by the head of Japan's Liberal Democrat Party, and likely the next prime minister, triggered the slide it yen, which in turn may have been the catalyst for unwinding of positions that resulted in broad based US dollar losses. Abe appears to have softened his stance. The LDP platform, for example, calls for increasing the BOJ's inflation target to 2% from 1%, instead of 3%, which Abe had previously suggested.

Abe reportedly was more respectful of the nominal independence of the BOJ, which needs to be understood in the context of Japanese institutional arrangements. These allow, for example, government representatives to attend central bank meetings. Nevertheless Abe's point was made, even if clumsily.

The next government, most likely a coalition led by the LDP will name the next BOJ governor and deputies in the coming months. There is no need to formally alter the BOJ charter and have to face criticism about encroaching on BOJ's independence. Abe can achieve his results, arguably more effectively, through the appointment process.

Abe suggested that the controversial retail sales tax might not be implemented in 2014, suggesting that the opt-out clause due to a weak economy, could be exercised. Abe, of course, is risking a credit downgrade. There is much speculation of which major country will be next following the recent French downgrade.

The UK must be considered a prime candidate. Two of the three rating agencies have it on negative outlook. Osborne, Chancellor of the Exchequer, delivers his Autumn Statement on December 5. Barring a major shift in the government's fiscal strategy, a downgrade seems increasing likely.

The US also appears to be risking a downgrade with its seeming inability to find a politically agreeable medium term fiscal consolidation strategy. At the first meeting between the two sides almost two weeks ago, some observers expressed optimism and even suggested market moves were related to it.

We were always skeptical and the weekend talk shows support our view that there has been little progress from initial positions. It is in the interest of both sides to take this to the wire, or a little more. Both sides have to make concessions and to do so before the last possible minute is understood as a sign of weakness to one's own base.

On a more positive note, revisions to Q3 US GDP will be released on Thursday November 29. Due to subsequent trade and inventory data, the consensus expects growth to be revised to 2.8% from 2.0%. This would be the second strongest quarterly performance in three years, behind Q4 11's 4.1% annualized pace.
There have been several developments in the emerging markets space that will likely influence activity in the days ahead. The Taiwanese stock market has been bolstered by the government indicating that it will announce measures to support equity prices by year-end. It extended late last week's gains with a gap higher opening and a 1% gain and closed at the highs of the day, suggesting the upside momentum is intact despite a 5% gain in three sessions.

Hungary's debt rating was cut two notches to BB by S&P. The outlook is now stable. A day before the downgrade, the government sold a record amount of 12-month bills in anticipation of a rate cut this week. The Russian ruble rose by the most in two months last week (~2%), driven largely by domestic businesses converting buying rubles for tax purposes. Foreign investors appeared to book some profits following Fitch's decision to grant Turkeyinvestment grade status. Israel's central bank meets today and is expected to leave the base rate unchanged at 2.0%. The shekel is consolidating its recent gains that carried it to one month highs. Dollar support is see near ILS3.85.

Brazil's central intervened to calm the market after the real hit 3-year lows against the dollar. It is not immediately clear what this means about the currency war that Mantega likes to cite. Columbiaunexpectedly cut interest rates before the weekend. Separately it is considering cutting taxes on foreign investors' bond profits to 14% from 33%.

Political Developments in Europe

MONDAY, NOVEMBER 26, 2012
Marc Chandler

http://2.bp.blogspot.com/-_W5IBK9jvH...e-of-cards.jpg

There have been several political developments in Europe to note. Although the immediate market impact seems modest, these developments will help shape the ongoing policy response to the financial crisis.

First is the Catalonia election. Many financial journalists look at the results and see the votes that went to nationalist parties was around 2/3 and they conclude that secessionist forces carried the day. We are less convinced and note that many of the Spanish papers ran headlines suggesting Mas' gambit failed. Mas' CIU remains the largest party, but it lost nearly 20% of its seats.

Some observers say this is a rejection of austerity, though Rajoy's PP appeared to have pick up a seat. The center-left nationalist party appears to have been the biggest winner. It is more secessionist minded, but disagrees with the CIU's domestic platform, which is quite mainstream. Arguably, more pressing than independence is that 42 bln euro debt the region has amassed and a credit rating below investment grade. On these issues, Mas may find he must deal with more unwieldy coalition than the one he had before.

Second, in Italy, the jockeying for position for the spring election got underway in earnest. The Democratic Party of the Left (PD) had a leadership contest. The current leader Bersani failed to secure a majority and will face the second highest vote getter, Florence Mayor Renzi in a run-off on December 2. The PD is seen as the most likely to name the next Monti's successor so the leadership contest may be seen as possibly picking the new prime minister.

Bersani represents the old guard in the party, and perhaps in Italian politics more broadly, while Renzi is younger, reformist. Ironically, Renzi is seen to be more likely to follow Monti's austerity, whereas Bersani may seek to claw back some labor concessions. Bersani is seen with the advantage.

The center right People of Liberty Party was planning its own leadership election on Dec 16, but Berlusconi threw plans into disarray by suggesting that he may indeed run again. He has reversed himself a couple of times and it is destabilizing. His party has slipped in the polls appears to be running in third place behind the PD and the Five-Star Movement behind the charismatic Grillo, who has endorsed a referendum on Italy's continued EMU membership.

It is still not clear what the electoral rules will be. Monti has been pushing for reforms prior to the election. The current system allows party leaders to pick members of parliament. A date for the election is not certain either. To get the most turnout if may be best to have regional and national elections on the same day. March 10 seems to be a possible date.

Third, in France, Hollande's support has slumped, but the center-right UMP can't quite figure out its strategy. A week ago, it was split between the Cope, former budget minister and representative of the right wing of the party, and the centrist, Fillon, former prime minister. Initially it appeared Cope won, but three days after the election, the party's election commission revealed that it had failed to count some votes and that Fillon actually won. The split remains unresolved. Former PM Juppe will reportedly try to adjudicate, but a new election has not be ruled out.

Even though the next presidential contest in France is not until 2017, the disarray, and perhaps splintering of the UMP, works in Hollande's interest. Former President Sarkozy also appears to benefit from the split in the UMP. The lack of a strong compelling leader may ease his rehabilitation and return to French politics.